Car insurance in the United States is a legal requirement in almost every state and a financial safety net for drivers. It works by pooling risk: many drivers pay premiums into an insurance system, and those funds pay for the losses of the few who have accidents or thefts. As a driver – especially if you’re new – you need to understand how car insurance works, what coverages are available, and how state laws affect youinvestopedia.comprogressive.com. This guide explains the basics of auto insurance in the USA, from the mandatory minimums to the difference between premiums and deductibles. You’ll also get tips on getting the right coverage and keeping your costs low.
In simple terms, car insurance is a contract between you and an insurance company. You pay a regular fee (your premium) and in return the insurer promises to cover certain losses (up to agreed limits) if you get into an accident, cause damage, or suffer theft or injury. Different types of coverage protect against different risksinvestopedia.comtrustedchoice.com. For example, if you cause a collision, your liability coverage will pay for the other party’s medical bills and property damagegeico.comtrustedchoice.com. If your own vehicle is hit or stolen, comprehensive and collision coverages can help repair or replace ittrustedchoice.com. In most cases, you’ll also choose how high your deductible is – the amount you pay out of pocket on a claim – which directly affects your premium costinsurify.cominvestopedia.com. Throughout this article, we’ll explain all these pieces so you know what to buy and how to use it.
Why Car Insurance is Mandatory in the USA
All U.S. states (except one) require drivers to carry at least a minimum amount of car insurance. The rationale is public safety and financial responsibility: if you cause an accident, having insurance means the victims can get compensation without bankrupting you. In fact, "virtually every state requires drivers to have some form of car insurance and also sets minimum amounts"investopedia.com. The only state that lets you drive without insurance is New Hampshire, but even there you must prove you can pay damages if you cause an accidentprogressive.com. Florida is a special case: it does not require liability for bodily injury (BI) – only for property damage (PD) – but it does require Personal Injury Protection (PIP) to cover medical costsprogressive.com. All other states require at least some liability insurance for both bodily injury and property damageinvestopedia.comprogressive.com. For example, Investopedia notes that 49 states (and DC) require bodily injury liability coverage (New Hampshire is the sole exception)investopedia.com, and virtually every state requires property damage liability as wellinvestopedia.comgeico.com.
These state minimums are often written in shorthand numbers (e.g. 25/50/25) that represent coverage limits in thousands of dollarsgeico.cominvestopedia.com. For instance, Ohio’s minimum is 25/50/25, meaning $25,000 BI per person, $50,000 BI per accident, and $25,000 PD per accidentinvestopedia.comgeico.com. Some states have higher or lower minimums; it’s crucial to know your own state’s law. Progressive Insurance reports that "nearly all states that mandate insurance require liability coverage for property damage and bodily injury"progressive.com. In practice, that means your policy will usually include at least the state-required liability limits.
If you drive without insurance where it’s required, you risk serious penalties. These can range from fines and license suspension to impoundment of your vehicle. In Virginia, for example, you can go without insurance but only by paying a hefty annual fee and filing an SR-22; otherwise you must carry insurance like any other state. The bottom line: for nearly every driver in America, having liability insurance is non-negotiable if you plan to legally drive.
What Does Car Insurance Cover? (Coverage Types)
Car insurance policies are made up of several different coverage types. Some are mandatory by law (such as liability), and others are optional but highly recommended. Here are the most common coverages new drivers should know, with what they protect and whether they’re required:
- Liability Coverage (Bodily Injury & Property Damage) – This is the foundation of any car insurance policy and is required by most statesgeico.com. Liability insurance pays for injuries or damage you cause to others. It has two parts: Bodily Injury (BI) liability, which covers medical bills and related costs if you injure someone in an accident, and Property Damage (PD) liability, which covers damage you do to other people’s property (like cars, fences, or buildings)geico.comtrustedchoice.com. For example, GEICO explains that liability "pays for property damage and/or injuries to another person caused by an accident in which you're at fault"geico.com. If you have a 25/50/25 policy in Ohio and cause a crash injuring two people with $20,000 each and $15,000 vehicle damage, your insurer would pay up to those limits, minus your deductible. Importantly, liability does not cover your own car or your injuries; it only covers others’ lossesgeico.com.
- Collision Coverage – Optional in every state. Collision insurance pays to repair or replace your own vehicle if it’s damaged in a collision, regardless of who is at faulttrustedchoice.com. For instance, if you hit a lamp post or another car, collision will cover the damage to your car, less your deductible. This is especially important if you have a loan or lease (the lender often requires it) or if you can’t afford large repair bills out of pocket. Without collision, damage to your vehicle is on you unless someone else’s liability picks it up.
- Comprehensive Coverage – Optional (not legally required). Comprehensive, also called "other than collision," covers damage to your vehicle from non-crash eventstrustedchoice.com. This includes things like fire, theft, vandalism, hitting an animal, falling objects, flooding, and broken glasstrustedchoice.com. For example, if a tree falls on your car or it’s stolen from your driveway, comprehensive insurance will pay for repairs or replacement, minus your deductible. This coverage is vital for protecting your car against almost everything except at-fault collisions.
- Uninsured/Underinsured Motorist (UM/UIM) Coverage – May be required in some states. UM/UIM protects you if you’re hit by a driver who has no insurance or insufficient insurance to cover the damage. It essentially steps in to pay your medical bills and car repairs after a crash caused by an uninsured/underinsured drivertrustedchoice.com. TrustedChoice explains that UM/UIM can reimburse you for expenses if you're hit by an at-fault driver who doesn’t carry adequate insurance (or in a hit-and-run)trustedchoice.com. About half of states mandate UM/UIM coverage, at least for bodily injury; the requirements vary by stateprogressive.com. Even where it’s optional, carrying UM/UIM is a smart safety net given how many drivers on the road are uninsured.
- Personal Injury Protection (PIP) / Medical Payments (MedPay) – Required in some states (especially no-fault states), optional in others. PIP (often called no-fault insurance) covers medical expenses and sometimes lost wages for you and your passengers after an accident, regardless of who was at faultprogressive.comtrustedchoice.com. It is mandatory in true no-fault states (Florida, Michigan, New York, etc.) and some partial-no-fault statesprogressive.comtrustedchoice.com. MedPay is similar but generally smaller; it covers medical bills with no fault consideration. For example, TrustedChoice notes PIP pays for “medical expenses and lost wages for you and your passengers after an accident, regardless of fault”trustedchoice.com. Maine uniquely requires MedPay in all policies, but otherwise PIP/MedPay are optional add-ons in most states. They can be useful coverage if you don’t have good health insurance or if you simply want immediate medical bill protection after a crash.
- Other Optional Coverages: There are also various add-ons like Rental Car Reimbursement (pays for a rental vehicle while yours is being repaired after a covered claim), Towing and Roadside Assistance (covers towing and minor on-the-spot services), Gap Insurance (covers the "gap" between what your car is worth and what you owe on a lease/loan if it’s totaled), and New Car Replacement (lets you get a new car if yours is totaled within a certain time frame or mileage)trustedchoice.comtrustedchoice.com. These aren’t required by law but can be purchased for extra peace of mind. For example, TrustedChoice describes gap insurance as covering "the remainder of what's owed on your auto loan if your vehicle gets stolen or totaled" when its value is less than the loan balancetrustedchoice.com. If you drive for rideshare (Uber/Lyft), also look into Rideshare Insurancetrustedchoice.com, since personal policies may not cover accidents while on the app. A full coverage policy bundle typically includes liability, collision, comprehensive, UM/UIM, and sometimes MedPay/PIPtrustedchoice.com, which is why it’s often recommended for new drivers.
In summary, think of liability coverages (BI/PD) as what protects others from your mistakes (and is mostly required), while collision, comprehensive, UM, and PIP protect you and your vehicle in different scenariosgeico.comtrustedchoice.com. Knowing these options helps you tailor a policy that meets state laws and your personal needs.
State Minimum Requirements
Because insurance laws vary by state, it’s important to know the minimum coverage requirements where you live (or where you drive most). As noted, nearly every state mandates liability coverage, but the exact limits differ. For example:
- California requires 15/30/5 (meaning $15k BI per person, $30k BI per accident, $5k PD).
- Texas requires 30/60/25.
- New York requires 25/50/10 for motorists under 21 or those with less than 6 months’ driving experience; higher for older drivers.
- Florida only requires 10/20/10 property damage plus PIP of $10,000 (no BI requirement)progressive.com.
- New Hampshire technically requires none (drivers can choose to self-insure by filing financial responsibility proof)progressive.com.
And many states require uninsured motorist and PIP coverages. Progressive highlights that about half of states make UM/UIM mandatory and PIP mandatory in all no-fault statesprogressive.comprogressive.com. For example, Florida, New York, and Michigan require PIP. Only Maine requires MedPay as part of the policyprogressive.com.
If you move to a new state, you’ll need to update your policy. Insurers can often adjust your coverage to meet another state’s rules. Always check your state’s DMV or insurance department website for the current minimums. Table of common examples (limits in thousands):
| State | BI Per Person | BI Per Accident | PD | Other Mandated Coverages |
|---|---|---|---|---|
California | $15,000 | $30,000 | $5,000 | UM/UIM required; PIP optional |
New York | $25,000* | $50,000 | $10,000* | PIP mandatory in no-fault, UM optional |
Ohio | $25,000 | $50,000 | $25,000 | UM mandatory; PIP optional |
Florida | $10,000 | – | $10,000 | PIP $10k mandatory; only PD liability requiredprogressive.com |
| New Hampshire | – | – | – | No requirement; must prove financial responsibility if uninsuredprogressive.com |
Beyond liability, consider adding UM/UIM and PIP if required or not already included. The key is: carry at least your state’s minimum. Many experts suggest getting more than the bare minimum if you can afford it, to better protect your assets. Remember: Limits are per accident, not per vehicle (e.g. 25/50 means $25k per injured person, $50k total per accident). If damage exceeds these limits, the at-fault driver (or you) could be sued for the remainder.
How Car Insurance Premiums Work
Your premium is the cost you pay for insurance, usually billed monthly or annually. Think of it like a subscription fee: as long as you pay the premium, your car is covered. The premium amount depends on many factors that assess risk. Some key factors insurance companies consider includeeverquote.cominvestopedia.com:
- Driving Record – One of the biggest factors. Accidents, tickets, DUIs, and claims in the last 3–5 years can raise your rate significantlyeverquote.com. Insurers reward safe drivers (some offer a "good driver" discount after a few years claim-free).
- Age & Experience – Younger and inexperienced drivers pay much more. EverQuote notes that "Car insurance for teens tends to be much higher because they have the highest chance for car accidents”everquote.com. Rates gradually decrease as you enter your 30s, assuming a clean record.
- Vehicle Type – What you drive matters. Expensive, powerful, or luxury cars cost more to insure. Safer cars with good crash-test ratings cost less. The make/model/year of the car affects rates, as do upgrades like anti-theft deviceseverquote.com.
- Location – Where you park and drive affects risk. Urban areas often have more accidents and thefts, so city drivers usually pay higher premiums than rural driverseverquote.com. Insurance is typically cheaper in low-traffic areas.
- Coverage & Deductible – More coverage and lower deductibles mean higher premiums. A $500 deductible policy will cost more than a $1,000 deductible oneinvestopedia.com. Higher liability limits and adding optional coverages increase the cost.
- Credit History – In most states, insurers use credit-based insurance scores. Poor credit can raise rates, because data shows a correlation between credit and claim frequencyeverquote.com. (This practice is banned in California, Massachusetts, and Hawaii, however.)
- Mileage – The more you drive, the higher your risk of accidents. Putting high annual mileage on your policy can bump up the premium.
Average costs can give perspective. AAA reports that in 2022, full-coverage insurance (liability + collision + comprehensive) averaged about $1,515–$1,694 per yearinvestopedia.com. EverQuote estimates around $1,684/year ($140/month) for the national averageeverquote.com. But keep in mind, your own premium may be far higher or lower depending on personal factors.
Premium vs Deductible: What's the Difference?
An important concept in car insurance is the trade-off between premium and deductible. Your premium is the recurring payment you make to keep coverage active. Your deductible is what you pay out of pocket when you file a claim. Insurify explains it well: "Unlike premium payments, your deductible will only come up if you file a claim. A deductible is the out-of-pocket cost you pay for covered damages before your insurance coverage kicks in. On the other hand, you need to pay your premium on an ongoing basis to maintain coverage"insurify.com.
For example: suppose your policy has a $250 deductible. If you have an accident with $8,000 in covered repairs, you would pay the first $250 and the insurer pays the remaining $7,750insurify.com. Your premiums are what you pay every month or year even when nothing happens, so they don’t count toward the deductible.
Generally, there’s a simple rule: higher deductibles lead to lower premiums and vice versa. Choosing a $1,000 deductible might cut your premium significantly, but it means a bigger out-of-pocket cost at claim timeinvestopedia.com. When getting a quote, consider how much you could afford if you had to replace your car. If you have ample savings, a higher deductible might be worth the monthly savings.
How to Lower Your Premium
Thankfully, drivers have ways to reduce insurance premiums. Some proven strategies include:everquote.com
- Compare Multiple Quotes – Insurance rates vary widely between companies. EverQuote notes premiums can differ by hundreds of dollars for the same coverageeverquote.comeverquote.com. It pays to shop around every year, either by calling different insurers or using online comparison tools.
- Bundle Policies – Buying multiple policies (auto + home, or auto + renters) from the same insurer often yields a multi-policy discount. EverQuote states bundling home and auto is one of the best ways to save on premiumseverquote.com.
- Ask for Discounts – Insurers offer many discounts: safe driver, good student (for young drivers with good grades), multi-car, low-mileage, anti-theft device, military, and moreeverquote.com. Don’t assume you’re automatically getting all discounts – call your agent to review.
- Maintain a Clean Record – The simplest way to keep premiums low is to avoid accidents and tickets. Even one speeding ticket can raise your rates significantlyeverquote.com.
- Improve Credit Score – (Where allowed.) Paying bills on time and reducing debt can improve your insurance credit score, which may lower premiumseverquote.com.
- Choose a Higher Deductible – As mentioned, raising the deductible from $250 to $500 or $1,000 can lower the premium. Just be sure you can afford that deductible if you need itinvestopedia.com.
- Drive a Safer Vehicle – If you’re buying or leasing a new car, consider models that are known to be affordable to insure. Some vehicles come with built-in safety and anti-theft features that can lower insurance costseverquote.com.
- Low-Mileage Discounts or Usage-Based Insurance – If you drive very little or only occasionally, some insurers offer low-mileage discounts. Others offer “telemetric” or “snapshot” programs where safe driving tracked by a device or app can reduce rates.
- Pay in Full / Opt for Auto-Pay – Some insurers give a discount (or avoid a installment fee) if you pay the annual premium in full, or if you set up automatic paymentseverquote.com.
Finally, keep your policy “lean” by dropping coverage that no longer makes sense. For example, if you have an old car worth only $2,000, you might drop collision/comprehensive and rely only on liability. Always consider the ratio of coverage cost vs vehicle value.
Filing a Claim After an Accident
If you do get into a crash or suffer damage, here’s how the insurance typically works:
- Report the Accident Promptly. Call your insurance company or agent as soon as possible after the incident. Almost all policies require prompt notice. According to Investopedia, "if you've been in an accident or your car has been damaged in some other way, you should notify your insurance company as soon as possible"investopedia.com.
- Provide Necessary Information. Give the insurer details: when and where it happened, police reports, photos of damage, and contact info for any other drivers. Save receipts if you paid for towing or other emergency expenses.
- Claims Adjuster Assesses Damage. The company assigns an adjuster who will inspect the car and loss. They determine the repair cost or valuation of a totaled vehicle. You can usually take the car to a repair shop or have the insurer’s appraiser inspect it.
- Insurance Pays (minus Deductible). Once the damages are agreed upon, the insurer pays for repairs or settlement. “Either way, you'll be responsible for covering your policy's deductible”investopedia.com. For example, if damage is $5,000 and your deductible is $500, the insurer will send $4,500 to the repair shop or reimburse you after you pay the $500.
- Police and Documentation. If other drivers were involved, exchange insurance information at the scene (names, policy numbers, etc.). File a police report if needed; insurers often require it for bodily injury or major accidents.
In a fault accident, your liability cover pays others’ claims, while your collision or medical cover (if you have it) pays your own car repairs and injuries, respectively. If the other driver is clearly at fault, their insurance will handle your claim (you can also use your insurance’s collision coverage and let your insurer seek reimbursement from the at-fault party, a process called subrogation). If the other driver is uninsured, your UM/UIM coverage will step in.
Handling a claim can affect your rates. Even a single at-fault claim may raise your premium at renewal. That’s why maintaining a clean record and safe driving are so critical.
Car Insurance for New Drivers
New drivers (especially teens) face some of the highest rates. Insurers know that inexperienced drivers have more accidents, so premiums for new licenses are steep. Here are some tips for new drivers:
- Full Coverage Is Smart. For your first policy, consider full coverage (liability + collision + comprehensive + UM/UIM). It costs more, but it protects you financially if you total the new car. As CBS News advises, first-time drivers often are best off with full coveragecbsnews.com.
- Stay on a Parent’s Policy (if possible). If you’re young, adding yourself to a parent or guardian’s policy is usually cheaper than getting your own single policy.
- Good Student Discounts. Many insurers offer discounts if you are a student with strong grades. Ask about that if you qualify.
- Driver’s Education & Safety Courses. Completing a certified driver’s ed program can sometimes reduce premiums.
- Shop Wisely. Get quotes from multiple companies. Some specialize in insuring younger drivers at lower rates.
As EverQuote notes, inexperience is a major cost driver: "Car insurance for teens tends to be much higher because they have the highest chance for car accidents"everquote.com. Over time, as you gain experience and maintain a clean record, your rates should drop significantly.
Frequently Asked Questions (FAQs)
Conclusion
Understanding how car insurance works in the USA is vital for every driver. You need to know your state’s requirements, the different types of coverage, and how pricing works to pick a policy that protects you without breaking the bank. Remember: review your policy annually, shop around for quotes, and adjust coverages as your needs change (for instance, after moving or buying a new car). With the right knowledge, you can drive confidently, knowing that you and others on the road are protected.
Stay safe and insured – and don’t hesitate to get a quote or talk to an agent to ensure you have the coverage you need.